Temple Health and partners agree to buy Chestnut Hill Hospital from Tower Health

Temple University Health System, Redeemer Health, and Philadelphia College of Osteopathic Medicine have formed a consortium to buy Chestnut Hill Hospital from Tower Health, the nonprofit health systems announced Monday.

The price was not disclosed.

“Together, our organizations bring the expertise, resources, operational excellence and skilled clinical care to ensure that Chestnut Hill Hospital remains a durable and sustainable resource for the eastern Montgomery County and northwest Philadelphia communities,” Temple’s CEO, Michael A. Young, said in a news release.

Temple Health will own 60% of the newly named Temple Health-Chestnut Hill Hospital and will manage it. Redeemer and PCOM will own 20% each. The acquisition, which is expected to close by the end of this year, first must be approved by state regulators and Tower Health bondholders, who are owed $1.3 billion. The hospital employs 827 and is licensed for 148 beds.

No layoffs are planned, and hospital CEO John D. Cacciamani is staying, the buyers said.

The announcement comes seven months after Tower and Trinity Health Mid-Atlantic terminated talks on a Chestnut Hill deal.

If the sale to Temple and partners is completed, it will free Tower from another of the five money-losing hospitals it acquired in 2017 for $426 million, leading to massive losses at the health system based in Berks County.

In June, Tower sold the shuttered Jennersville Hospital in western Chester County for $8 million. Tower Health closed Brandywine Hospital earlier this year, and still operates Phoenixville Hospital and Pottstown Hospital. Tower’s flagship hospital is Reading Hospital in West Reading.

According to Philadelphia area health-care industry sources, other health systems, including the University of Pennsylvania Health System and Prime Healthcare Services, also made offers in the last year or so for Chestnut Hill, either for the real estate alone or as a functioning hospital, that Tower rejected.

Chestnut Hill had an operating loss of $13 million on $92 million in revenue in the nine months that ended March 31. The deficit would be greater if losses from the 45 doctors employed by Tower in Chestnut Hill were included. Tower’s overall operating loss during that period was $137 million on $1.7 billion in revenue.

More important, Tower’s cash reserves, which it needs for the day-to-day operations of its businesses, have continued to dwindle.

“This transaction helps to advance Tower Health’s new strategic focus on our service area in Berks, Northern Chester, and Western Montgomery Counties, as well as St. Christopher’s Hospital for Children and Drexel University College of Medicine at Tower Health,” Tower CEO P. Sue Perrotty said.

The turmoil at Tower has been challenging for Chestnut Hill, Cacciamani said. “Throughout these kinds of tumultuous periods you see exodus of leadership, usually. You see the exodus of key physicians, and frankly we have not experienced that,” he said. “We continue to focus on our patients. We continue to focus on quality.”

The purchase of Chestnut Hill adds to Temple’s expansion under chief executive Mike Young. Last year, Temple Health acquired the former Cancer Treatment Centers of America facility in the Crescentville neighborhood of Philadelphia and is turning it into a women’s hospital. Temple paid $12 million.

Four years ago, Temple University’s board embarked on an effort to restructure its health system, including the potential sale of Fox Chase Cancer Center and Jeanes Hospital, with the goal of securing its future as a vital provider of health-care services in its core North Philadelphia market.

Temple Health is better off financially than it’s been in years thanks to improved operations and a $305 million cash infusion last fall from the sale of its half of Health Partners Plans Inc., a Medicaid insurer, to Thomas Jefferson University, but expansion at a time of an accelerating shift to less profitable outpatient care, widespread staff shortages and narrow — if any ― profit margins is inherently risky, experts say.

Jefferson had also agreed to buy Fox Chase but backed out of the deal in the early months of the pandemic, leaving Temple to adjust its strategy. Temple has since more fully integrated Fox Chase into the overall health system, enabling the cancer center to make a bigger financial contribution to Temple than the sale would have, Young said in an interview Monday.

Young also said Temple is running out of room at its current facilities. “This gives us a capital expansion that otherwise would have taken several years to construct,” he said.

Montgomery County-based Redeemer Health, which has reported five straight years of operating losses, is in a somewhat unusual position to be making an acquisition given that in May it announced that it was testing the market to see whether anyone was interested in partnering with the 239-bed Holy Redeemer Hospital in Meadowbrook.

Whatever happens at Holy Redeemer Hospital is on a separate track from the acquisition in Philadelphia, Redeemer CEO Michael B. Laign said.

For the Philadelphia College of Osteopathic Medicine, which has also helped St. Christopher’s Hospital for Children by financially backstopping owners Tower and Drexel, the Chestnut Hill acquisition could help it secure training spots for its medical students.